Russian government split on controversial data storage law

Irina Yarovaya

By Vladimir Kozlov in MoscowSeptember 12, 2018

Weeks after being enacted, the Russian controversial law on data storage, known as the "Yarovaya Law," is still under fire by critics from within the government, making tech companies uncertain about how to comply with it.

Authored by lawmaker Irina Yarovaya, the legislation requires that mobile phone operators and internet companies store recordings of users' calls and online activities for six months, ostensibly in a bid to combat extremism and terrorism. The law was adopted in July 2016 and enacted on July 1, 2018.

On its adoption, the law was severely criticised by civil liberty advocates who argued that the availability of stored data to Russian security services could be viewed as infringement of privacy, also conflicting with EU regulations.

From the business viewpoint, complying with the law is predicted to burden telecom and online companies with an estimated $1.5bn in costs that would cause 0.5-1.0x of additional leverage.

Following the law's enactment on July 1, Russian telecom operators immediately complied, while internet companies were still waiting for technological clarifications from the communications ministry.

However, in early August, the economic development ministry slammed the communication ministry's proposed regulations that were supposed to clarify and specify the requirements of the Yarovaya Law.

In a statement published on a government web site for discussion of legislative acts upon consultations with the local IT industry, the economic development ministry argued that the regulations contradict other existing laws and stipulate excessive equipment costs, while some of the requirements are unrealizable.

The economic development ministry brought up president Vladimir Putin's decree "On the National Goals and Strategic Tasks of the Development of the Russian Federation through 2024," which puts speeding up of the country's technological development as one of the strategic priorities.

The ministry argued that by trying to comply with the Yarovaya Law, Russian tech companies will waste resources that could otherwise be investment in the development of new technologies.

Since the Yarovaya Law was first discussed over two years ago, Russian tech companies have been pointing to exorbitant expenses they will have to incur if they fully comply with the legislation.

The internet company Rambler & Co., controlled by tycoon Alexander Mamut, calculated that compliance with the Yarovaya Law will cost it RUB14.4mn ($226,500) immediately and another RUB1.44mn ($22,650) a year.

However, Rambler & Co. is a relatively small player in the segment and doesn't run any social media or boast a huge number of users. Extra expenses incurred by bigger players, such as, for instance, Yandex or Mail.Ru Group, are expected to be way higher.

Storage of user data is estimated to cost RUB20mn ($314,600) per 500,000 users, according to the economic development ministry.

That would set back Mail.Ru Group, with 130mn users, RUB5.2bn ($81.8mn) and Yandex, with 90mn users, RUB3.6bn ($56.6mn).

Mobile giants will have to spend even more. Megafon earlier estimated the costs of compliance with the Yarovaya Law at RUB40bn ($629mn) over the next five years, and for MTS, that figure is projected to be about RUB60bn ($944mn). Vimpelcom said it will allocate RUB45bn ($708mn) through 2023, of which RUB6bn ($94mn) will have to be spent in 2018.

Under the communications ministry's rules, online companies have to store at least two copies of any piece of information, and in case of online broadcasts accessed by several users, they would have to store multiple copies of the same recording.

In addition, the economic development industry argues that the regulations don't differentiate between larger and smaller companies, forcing the latter to purchase the same kind of expensive equipment.

The ministry suggested that the regulations should be substantially revised before online companies are made to comply with them.

Meanwhile, some local companies are trying to cash in on Yarovaya law by offering data storage services.

In early August, state-controlled telecom giant Rostelecom suggested it could rent out its data processing centres to other operators for storage of user data, Vedomosti reported.

Rostelecom's first customer for this kinds of service is likely to be mobile phone operator T2 RTK Holding, which provides services under the brand Tele2.

No numbers are available at this point, so, it's not clear if renting out data storage capabilities to other companies will allow Rostelecom to cover its own expenditures on compliance with the Yarovaya Law.

The company's president Mikhail Oseyevsky was quoted by Vedomosti as saying that "no one will profit on the Yarovaya Law, everyone will see losses."

Another Russian telecom company, Transtelecom, is also considering renting out data storage capacities to smaller companies. However, in addition to rental fees, the latter will still have to invest in equipment for recording calls and text messages. For some companies those investments would be comparable with their revenues.

This article first appeared in bne IntelliNews monthly bneTech newsletter. Sign up to receive it by email.

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